LNG World Shipping

Dynagas reaps reward of ice class LNG play

Boris Vilkitsky is the first of the five Arc7 icebreaking LNG carriers in which Dynagas Holdings has a stake

Dynagas has a private and a public side and one is feeding LNG carriers into the other, as the group’s long-term contracts to service Russian Arctic LNG exports commence

It is often said the barriers to entry are high in the LNG carrier business and there is no doubt that sound credentials are de rigeur. For George Procopiou, founder of Dynacom, it was his reputation and track record in other shipping sectors that convinced his banks to support him when his tanker company ordered its first LNG carrier in 2004. Furthermore, they did not hesitate to provide their backing even though he had taken the bold step of ordering ice-class vessels.

Today, his shipping group has two companies in the LNG sector, Dynagas Holdings and Dynagas LNG Partners. The role of Dynagas Holdings is to provide newbuilding supervision and crewing, as well as commercial and technical management, for the group’s LNG carriers.

Ice specialist

In recent years Dynagas Holdings has been busy supervising the construction of fully winterised, icebreaking Arc7 LNG carriers built for the carriage of Yamal LNG cargoes loaded at Sabetta high in the Russian Arctic.

The company has an interest in five of the 15 such ships that Daewoo Shipbuilding & Marine Engineering in Korea is building for the project. Two of the Dynagas five have been completed and the remaining three are due for commissioning in 2019.

When Dynagas LNG Partners was floated on NASDAQ in 2013, its assets comprised three existing Finnish Swedish ice class 1A (equivalent to Arc4) Dynagas Holdings LNGCs - Clean Energy, Ob River and Clean Force - a US$30M revolving credit from George Procopiou and an option to buy the ice class LNGCs Dynagas Holdings had on order.

Clean Planet’s employment in the Cool Pool is being followed by a 17-year charter with Yamal LNG, until 2035

At the time Dynagas Holdings had a 58% interest in Dynagas LNG Partners, and had agreed to pay the management company, which is wholly owned by George Procopiou, US$2,500 per day (increasing annually by 3%) for each vessel, plus 1.25% gross of charter hire.

In due course, seven new Dynagas Holdings LNGCs earmarked for the Yamal LNG project will be sold, with their time charter contracts, to Dynagas LNG Partners. The complement comprises the five 172,410 m3 Arc7 ships constructed by DSME and two Arc4 ships that will be utilised to shuttle cargoes transshipped from the Arc7 vessels to their final customers.

This ship purchase pattern is clearly laid out in the Dynagas LNG Partners prospectus: “We will receive the right to purchase these vessels, which we refer to as the optional vessels, at a purchase price to be determined pursuant to the terms and conditions of the omnibus agreement within 24 months of their delivery to our sponsor.”

“Some of the contracts that the Dynagas group had been offered required too low rates for too short a period. This might be tempting for those owners looking to enter the LNG business, but one had to think of the employment possibilities of a vessel at the end of five-year contract”

The sale value is set by an independent appraiser and the right to purchase is not an obligation. Nor does the prospectus prohibit the family from retaining the newbuildings and competing against the public company.

Speaking at the Analyst & Investor Capital Link Shipping Forum, organised as part of Posidonia week in Athens in June 2018, Dynagas LNG Partners chief executive Tony Lauritzen (George Procopiou’s son-in-law), said, “It is Dynagas group policy to always have some LNG ships on order speculatively.”

He noted that it was very important to arrange the right sort of contract. Some of the contracts that the Dynagas group had been offered required too low rates for too short a period. This might be tempting for those owners looking to enter the LNG business, but one had to think of the employment possibilities of a vessel at the end of five-year contract, he warned.

Ultimately, Dynagas will have 11 LNGCs on charter to Novatek, operator of the Yamal LNG project. The fleet will comprise the five Arc7 icebreaking ships and six ice class Arc4 vessels. Novatek is employing the Arc4 ships for the final leg of the delivery voyages, to opimise the time the Arc7 vessels work in the Arctic high latitudes for which they were designed.

FSRU play

In 2016 it was rumoured that the Dynagas group had signed for two newbuilding slots with Hudong-Zhonghua Shipbuilding in China and that engineering proposals had been drawn up for two floating storage and regasification units (FSRUs) for the slots in question. The decision to order the two FSRUs on a speculative basis was later confirmed. Previously, in 2012, the Dynagas group was reported to have cancelled a speculative FSRU order at STX Offshore.

When asked about FSRUs at the Capital Link Forum, Mr Lauritzen was, not surprisingly, bullish. “We believe in the FSRU market. We are impressed with how the industry has been making increasing use of regas vessels. We have seen a market that has gone from being extremely long term to one where units are often being chartered in for seasonal need.

We have chosen a flexible FSRU design able to accommodate this change in the regas vessels sector. Our new ships will be tailor-made for use as both conventional, trading LNG carriers and FSRUs. The Hudong pair will be built with dual-fuel, diesel-electric propulsion systems and twin skegs and will be able to sail at 19.5 knots. For regasification duties they are being provided with the ability to vaporise LNG, using either the open-loop or closed-loop technologies, or even a combination of the two.”

With the speculative FSRU orders, the Procopiou shipping group is again going boldly into a new sector, albeit with the adaptability to work in the pure LNG carrier market, if need be. One thing is certain, Mr Procopiou is not afraid to take a punt on the LNG market.